Tuesday, June 19, 2012

A borrower cannot bring a lawsuit seeking rescission more than three years after loan consummation, the U.S. Court of Appeals for the 10th Circuit has ruled. In its June 11, 2012, decision in Rosenfield v. HSBC Bank, USA, the 10th Circuit rejected the borrower’s argument that her lawsuit was timely because, before the three-year period ended, she had sent a notice of rescission to the holder of her mortgage loan.

The borrower’s position—that she needed only to send notice of rescission within the three-year period to validly exercise her rescission right—was not compelled by the plain language of the Truth in Lending Act or Regulation Z and conflicted with TILA Section 1635(f), which provides that the right to rescind expires after three years, the 10th Circuit concluded.

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The 10th Circuit has now joined the Third and Ninth circuits in holding that notice alone within the three-year period is insufficient to validly exercise a right to rescind.

By contrast, the Fourth Circuit, in its decision in Gilbert v. Residential Funding LLC, is the only federal appeals court to hold to the contrary. Commenting on Gilbert, the 10th Circuit stated that it “simply [could not] square the Fourth Circuit’s view with the Supreme Court’s strong pronouncement in Beach [v. Ocwen Federal Bank] that the TILA rescission right is extinguished if it is not exercised within the three-year statutory period.” (For more information on Gilbert, see our prior legal alert and blog post.)

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